CME Market moves post-June release of CS #’s

Quotes on the CME Case Shiller futures contracts generally slipped lower after Case Shiller #’s were released Tuesday morning.  The one-day changes(mid-market) may be the best indicator of changes as they incorporates lower offers and lower bids, even if closes don’t change.  (Note that I’m highlighting the Nov ’17 contract here.  Other expirations would likely show similar results. ) As highlighted in red, the CUS and CHI contracts fell the most, with CHI falling more than two points.  LAV was the only contract quoted higher.  (As of 3 PM there was only one trade in HCIQ17, bringing the total trades in June to 12.)

My sense is that the gain in index levels versus one year ago (shown here labeled as “last month’s HPA” for  the May ’17 release vs. May ’16 release, and “this month’s HPA”, shown as the June ’17 release vs. the June ’16 release) were slightly lower in 9 of the 11 contracts.  The two regions that saw a slight uptick in HPA (LAV and SDG) saw the smallest price losses. (Note that I’m using the revised versions of past index levels.  Certain indices -most notably CHI -have been experiencing frequent downward revisions, so that measured gains might be revised lower).

This slide in HPA might be explained by very strong June ’16 vs. May ’16 index values, OR, the sentiment about the importance of low inventory levels is losing steam.  On the second comment, I’d note that the last 4-5 trades this month have all been “bid hit”.  One would have to go back many weeks to find a similar pattern where traders were hitting bids. Perhaps the market got ahead of fundamental value.

Having said that, I’d note that the mid-market prices in the Aug’17 contract (that is, in comparison to the Aug’16 index release) are consistent with YOY price gains expanding from the most recent HPA.   The BOS, CHI, NYM, SFR and WDC contracts are all priced (at mid-market) for YOY index gains of ~1% higher than this month’s (June 17′ vs June ’16 gains).   So, either index HPA, might revert higher next month (as inventory headlines play out), or several of the Aug ’17 contracts are quoted too high (or is it something else?).

Let me know what you you think (at